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The median home sales price in the U.S. was nearly $417,000 in the first quarter of 2025, so it’s not uncommon for first-time homebuyers to find themselves in this price range. The answer to the question “how much down payment do I need for a $400,000 house?” can vary based on the type of home loan and your creditworthiness as a borrower.

Here’s a closer look at how first-time buyers can afford a $400K house, from the down payment to mortgage preapproval and what you can expect for monthly mortgage payments.

How Much Income Do I Need to Afford a $400K Home?

The income you’ll need to afford a $400,000 home goes beyond saving up for a down payment. Rather, it’s about your ability to afford the monthly mortgage payment. How much you’ll pay each month depends on whether you pay private mortgage insurance (PMI), the interest rate, and other factors.

Many financial experts suggest spending no more than 30% of your gross monthly income on housing costs. Using this budgeting rule, let’s crunch the numbers with a mortgage payment calculator on what income you’ll need to afford a $400,000 home purchase without overextending your finances.

For example, let’s say you made a 3% down payment of $12,000 on a $400,000 house, which could be possible when buying your first home, depending on your qualifications. Let’s also assume that you take out a 30-year home loan at a 7.00% interest rate. That would amount to about $2,580 for a monthly mortgage payment. To reasonably afford this, you’d need to earn $8,600 per month. In other words, that’s an annual income of around $103,000. This assumes you don’t have any debts beyond your home loan payment.

Also note that this estimate does not include PMI, property taxes, and other costs of homeownership. When crunching the same numbers with a mortgage calculator with taxes and insurance, the monthly payment comes closer to $3,100. This would mean earning $10,300 a month ($123,600 per year) to comfortably afford payments on a $400,000 home.

Calculating home affordability also involves factoring in your existing debts, such as student loans and auto loans, plus other cost of living expenses.

Recommended: Average Monthly Expenses for One Person

How Much Is the Down Payment for a $400K House?

Conventional wisdom suggests putting a 20% down payment on a home. Though this helps avoid paying PMI, you may be eligible to put as little as 3% down if you qualify as a first-time homebuyer. Considering these as the two ends of the spectrum, a down payment for a $400,000 house could range from $12,000 to $80,000.

Homebuyers have other upfront expenses to account for when determining how much house they can afford. Notably, closing costs typically add up to 2% to 5% of a home purchase price. There may also be home renovation and moving costs to include in your home-buying budget.

What Are the Down Payment Options for a Home Worth $400K?

How much down payment do you need for a $400,000 house? Here are your potential down payment options depending on the type of mortgage loan you apply for.

•   With any mortgage, putting 20% down means not having to pay PMI, which costs 0.5%-1.5% of the home loan amount each year. A 20% down payment is most common with a conventional mortgage, and would amount to $80,000 for a $400,000 home.

•   Qualified first-time borrowers could secure a conventional mortgage with a down payment of as little as 3%, amounting to $12,000 in this example. Other buyers may need to fork out 5%, or $20,000, to qualify. Down payment assistance programs can help some first-time buyers, veterans, and other eligible applicants afford a down payment on a home.

•   With a government-backed FHA loan, first-time homebuyers could make a down payment of just 3.5%, or $14,000 for a $400,000 house. Borrowers need a credit score of 580 or higher to qualify for this minimum down payment. (You might also get an FHA loan with a score of 500 to 579, but a 10% down payment would be necessary.)

•   Other government-backed loans, including VA loans and USDA loans, may not require any down payment to qualify, though putting some money down can help build equity and secure a more competitive rate.

Recommended: Best Affordable Places in the U.S.

What Does the Monthly Mortgage Payment Look Like for a $400K Home?

To recap, your monthly mortgage payment is determined by several factors. The interest rate you qualify for is based on your credit score, debt-to-income (DTI) ratio, and other personal financial information. How much money you put down and the length of the loan term — typically 15 or 30 years — also has an impact on the monthly mortgage payment for a $400,000 home.

If you put $12,000 toward a $400,000 home with a 30-year fixed-rate mortgage at 7.00%, you can expect a monthly payment of $2,580. Upping the down payment to 5% or 10%, would cut the monthly payment to around $2,528 and $2,395, respectively. On the other hand, locking in a better interest rate, say 6.50%, would lower a monthly payment from $2,580 to $2,452, using the first example with a 3% down payment.

Your mortgage payments will go toward the loan interest and principal, with a greater share going toward interest during the initial part of the loan term. Making additional payments on the loan principal each month is one strategy for saving on interest and shortening repayment.

What to Do Before You Apply for a $400K Mortgage

Buying a home is often the largest purchase in one’s lifetime and home expenses are a major contributor to the cost of living in the U.S. If time allows, there are some steps you can take to improve your borrower qualifications and secure more favorable loan terms.

Paying off existing debts, especially high-interest debts, can reduce your DTI ratio and the perceived risk for lenders to issue you a mortgage. Having a DTI ratio of 36% or less is preferred, though borrowers may qualify with a higher DTI ratio. Building up more savings toward a down payment and closing costs can also enhance your chances of approval, plus reduce stress on you and your finances.

Should I Get Preapproved Before Applying for a Mortgage?

Home buying can be competitive, so it’s helpful to demonstrate that you’re a serious buyer by getting preapproved before making an offer. The mortgage preapproval process involves submitting documentation about your income and assets. Lenders will evaluate your credit and financial history, too.

If you get preapproved, lenders will provide a letter listing the specific loan amount and interest rate you’re preapproved for. This is not a commitment, and it’s typically only valid for up to 90 days.

How to Get a $400K Mortgage

Applying for a mortgage is a fairly straightforward process that can be done online or in person. The applications require many of the same materials you’d have already gathered for mortgage preapproval, plus information on the property you’re intending to purchase.

It’s important to compare lender offers and find the best mortgage terms before applying. As noted above, a slight change in the interest rate can significantly lower monthly payments and the total interest paid over the life of the loan. Remember, though, that if you aren’t overjoyed with your original interest rate, a mortgage refinance can be an option down the road.

The Takeaway

How much down payment do you need for a $400,000 house? You could put as little as $12,000, or up to $80,000, toward a down payment depending on the type of home loan, your creditworthiness, and whether you’re a first-time buyer. It’s also possible to get a home loan with zero money down.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much should I make to afford a $400,000 house?

If you follow the 30% rule, which says your housing costs shouldn’t exceed 30% of your gross income, you should make at least $103,000 a year to afford a $400,000 house, assuming a 3% down payment and 7% interest rate on a 30-year fixed rate mortgage. Borrowers with more saved for a down payment could potentially afford a $400,000 house with less income. Those with other debts will need a greater income.

What credit score is needed to buy a $400,000 house?

Credit score requirements to buy a $400,000 house depend on the type of home loan. FHA loans require a minimum credit score of 500, whereas borrowers usually need a 620 credit score to qualify for a conventional mortgage.

How much is a $400K mortgage per month?

The monthly payment on a $400K mortgage depends on the interest rate you qualify for and loan term. A low interest rate of 5.50% could mean a payment of about $2,300 per month, while a higher interest rate of 7.5% could see monthly payments of $2,800. The added cost of homeowners insurance, property taxes, and mortgage insurance could further increase the monthly payment.

Photo credit: iStock/DragonImages

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q225-143

Buying a $600,000 home is exciting, but you may have a lot of questions about the process, especially if you’re a first-time homebuyer. How much is the down payment for a $600,000 house, for instance, and what income do you need to afford your mortgage payments? There’s no one-size-fits-all answer, but first-time buyers usually need to put down at least 3% for a conventional mortgage. Making a 20% down payment will help you avoid private mortgage insurance (PMI) and reduce the size of your loan. Here’s a closer look at the financials, so you know what to expect when it comes to purchasing a $600,000 home.

How Much Income Do I Need to Afford a $600K Home?

When considering how much you need to afford a $600,000 home, the 28/36 rule can help. This guideline suggests spending no more than 28% of your gross income on housing costs and no more than 36% on all your debt payments combined.

Let’s say, for example, that you put a 20% down payment on a $600,000 home. If you chose a 30-year mortgage with a fixed rate of 6.63%, your monthly principal and interest charges on your home loan would be $3,075. Following the 28/36 rule, your gross monthly income should be around $131,800 to afford these bills.

However, your monthly housing costs will be even higher when you account for property taxes and homeowners insurance. Factor in these costs and you’ll likely need an annual income closer to $165,000. The cost of living in the U.S. varies significantly, so factor in costs in your specific location when making this calculation. You may get by with a lower income in one of the best affordable places in the U.S.

If you make a down payment of less than 20%, you’ll have higher monthly housing costs. Along with paying off a larger mortgage, you’ll have to pay for private mortgage insurance (PMI) for a certain amount of time, which typically costs about 0.58% to 1.85% of the loan amount.

How Much Is the Down Payment for a $600K House?

The down payment for a $600,000 house varies depending on the type of mortgage loan you choose. Options include conventional mortgages, FHA loans (backed by the Federal Housing Administration), and others. Take a look at how the loans differ:

*In much of the U.S., the FHA loan limit for a single-family home in 2025 is $524,225. The limit for a two-family home is $671,200. Some markets have higher limits; consult a lender.

What Are the Down Payment Options for a Home Worth $600K?

Conventional home loans are the most common type of mortgage, and you can find them from banks, credit unions, and online lenders. The minimum down payment requirement can be quite low at 3% (for first-time buyers) or 5%, but you’ll need to put down at least 20% to avoid PMI charges.

First-time homebuyers may also consider FHA loans. These loans can be appealing to borrowers with weak credit who might have trouble qualifying for a conventional mortgage. You’ll need to put down 3.5% or 10%, depending on your credit score.

VA and USDA loans offer 0% down payment options. VA loans are available to eligible veterans, servicemembers, reservists, and surviving spouses, while USDA loans are designed for low- and moderate-income individuals who are buying a home in a rural area.

If you decide to finance a home at a much higher price point someday, you might also explore a jumbo loan, which offers up to $3 million.

Recommended: What Is a Mortgage Refinance?

What Does the Monthly Mortgage Payment Look Like for a $600K Home?

Your monthly mortgage payment on a $600,000 home depends on your down payment amount and interest rate. Here’s what you could expect your monthly principal plus interest payments to look like with different down payment amounts based on current rates:

If you choose an adjustable-rate mortgage when buying your first home, your payments will fluctuate over time. ARMs often start out with lower interest rates than fixed-rate mortgages, but they can increase over time. Some have a 5/1 structure, meaning you pay a fixed rate for five years, after which the rate can be adjusted up or down.

What to Do Before You Apply for a $600K Mortgage

Before applying for a $600,000 mortgage, take these steps to boost your chances of approval.

•   Work on your credit score: Your credit score plays a key role in the mortgage approval process, as well as the interest rate you get. Paying down debts and keeping your credit utilization low can help increase your score. It’s also worth checking your credit report for errors.

•   Pay off debt: Paying down your debts can lower your debt-to-income ratio, which is an important factor when applying for a mortgage. Having more room in your budget will make it easier to qualify for a $600,000 home loan. You may also consider reducing your cost of living.

•   Avoid taking out new loans: Taking out a loan or opening a new credit card can incur a hard credit inquiry, which can affect your credit score. This activity could be a red flag for lenders.

•   Save for your down payment: As you prepare to apply, keep saving up for your down payment and closing costs. The higher your down payment, the smaller your loan and monthly mortgage costs. You can also explore down payment assistance programs.

Should I Get Preapproved Before Applying for a Mortgage?

Getting preapproved is a smart step in the home-buying process. When you apply for preapproval, lenders will review your finances in detail and make a conditional offer for a mortgage. That way, you can see if you qualify as a first-time homebuyer and for what size loan.
This will give you a clear picture of how much you can afford based on your credit, income and other factors. Providing a preapproval letter with your offer can show sellers that you’re a serious, qualified buyer.

Although the mortgage preapproval process doesn’t guarantee your mortgage just yet, it does show you’re likely to get your loan amount, as long as your circumstances stay the same.

Recommended: Average Monthly Expenses for One Person

How to Get a $600K Mortgage

A $600,000 mortgage is a relatively large amount, as the median home price in the U.S. is around $415,000. With the right preparation, though, you may get approved for a mortgage of this size. These are important steps to take.

1.    Review your finances: Lenders look closely at your credit, income, and debt-to-income ratio when you apply for a mortgage. (Your DTI is your total monthly debts divided by your gross monthly income.)

2.    Compare mortgage options: Most homebuyers opt for a conventional mortgage, but you can also explore FHA loans, VA loans, and USDA loans to see if any of these options are right for you.

3.    Prequalify with multiple lenders: Getting prequalified is a quick process that will give you a sense of whether you can qualify for a $600,000 mortgage, as well as your interest rate. The Consumer Financial Protection Bureau recommends comparing offers from at least three lenders.

4.    Apply for preapproval: Preapproval goes a step beyond prequalification, as lenders collect documentation and review your finances in detail. You could get preapproved with multiple lenders or one lender, depending on your timeline.

5.    Submit your full mortgage application: Once a seller has accepted your offer on a home, you can finalize your mortgage application. You’ll provide any outstanding documentation, such as bank statements and W-2s. The lender will order an appraisal on your home and work on underwriting your loan.

The Takeaway

Before making the leap into homeownership, make sure you understand how much of a down payment and income you’ll need to afford your monthly bills. Buying a $600,000 home is a big commitment, so review your finances as you prepare for this milestone.

If you’re ready to take the next step, SoFi offers competitive mortgage rates and helpful tools to guide you through the homebuying process. Learn more about your options with SoFi.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much should I make to afford a $600,000 house?

To cover your costs on a $600,000 house, you’ll probably need an annual pretax income of around $165,000, although each homebuyer’s costs are different. The amount of income you need to afford a $600,000 house depends on your monthly mortgage payments, which vary based on your down payment amount, interest rate, and property taxes. Experts generally recommend spending no more than 28% of your gross monthly income on housing costs.

What credit score is needed to buy a $600,000 house?

You typically need a credit score of at least 620 to qualify for a conventional mortgage, but a score of 700 or higher will help you land a better interest rate. Borrowers with lower credit scores could consider applying with a cosigner or pursuing an FHA loan. With an FHA loan, qualified buyers could have a credit score as low as 500.

How much is a $600K mortgage per month?

The monthly payments on a $600,000 mortgage will depend on your interest rate and loan term. Assuming a 30-year term, the monthly principal and interest costs would range from around $3,600 to $4,000 depending on rate and term.

Photo credit: iStock/monkeybusinessimages

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q225-144

We often hear that you should put 20% down when purchasing a home. That means the down payment for a $250,000 house would be $50,000. But not everyone has that much cash lying around.

Luckily, nowadays you can get a conventional mortgage by putting significantly less money down. In fact, some first-time homebuyers can buy a house with as little as 3% down. For a $250,000 home, that’s only a $7,500 down payment. And if you qualify for a VA loan (backed by the U.S. Department of Veterans Affairs), you may be able to purchase a $250,000 house with 0% down. Even better: Anyone who hasn’t owned a primary residence in the last three years is usually considered a first-time buyer.

Below, we’ll explore how to calculate the down payment on a $250,000 house, plus what you should budget for monthly mortgage payments and how to get approved for the mortgage.

How Much Income Do I Need to Afford a $250K Home?

On average, you’ll need to earn about $76,000 before taxes to afford a $250,000 home, but this can vary significantly. Why? How much income you need for a $250K house depends on several factors, including your other debts, your credit score, the length of the home loan, property taxes, homeowners insurance costs, and other fees:

•   Other debts: Lenders don’t look purely at your income when deciding to approve you for a mortgage; rather, they look at your income in relation to your debts. Typically, you need a debt-to-income ratio of 36% or less to qualify for a mortgage, but this can vary by lender. If you have significant debts (credit cards, student loans, auto loans, etc.), you’ll need to make more money to ensure you meet a lender’s DTI requirements.

•   Your credit score: Your credit score impacts your interest rate. A lower credit score means a higher interest rate — and a higher monthly payment to budget for.

•   The length of the loan: A 30-year loan term means your mortgage is spread out over 360 payments, which makes them smaller and more manageable on a lower income. However, if you get a 15-year mortgage, your monthly payments will be considerably larger, meaning you’ll need a higher income to afford them.

•   Property taxes: In addition to paying back your loan, you’ll also have to pay property taxes every year. Make sure you factor in these taxes when calculating how much money you need to make to afford a $250,000 home.

•   Homeowners insurance costs: You aren’t just budgeting for the cost of the house. You also need to think about the cost of living in general. You’ll need to leave room in your budget for the homeowners insurance you’ll have to carry, for example. The cost of homeowners insurance depends on factors such as where you live and the size of your home.

•   Other fees: Some lenders roll certain loan fees (such as appraisal fees and closing costs) into the mortgage. If you opt for a lender that does so, it can increase your monthly loan payment.

Recommended: Best Affordable Places to Live in the U.S.

How Much Is the Down Payment for a $250K Home?

The down payment on a $250,000 home depends on the type of mortgage loan you get. Traditionally, experts recommend putting 20% down ($50,000 for a $250,000 home); this is ideal for a conventional mortgage, as putting 20% down means you don’t need to pay for private mortgage insurance (PMI).

However, not everyone can afford to put 20% down. Here’s a look at various mortgage types and the minimum down payment on a $250,000 home for those who qualify as a first-time homebuyer:

•   Conventional mortgage: As low as 3% to 5% ($7,500 to $12,500)

•   FHA (Federal Housing Administration) loan: As low as 3.5% ($8,750) for buyers who meet credit score requirements

•   VA loan: As low as 0% for qualifying borrowers and homes

What Are the Down Payment Options for a Home Worth $250K?

The down payment options for a $250,000 home are varied, from as little as 0% down through a VA loan to as much as 100% (i.e., paying cash for the house). Which option you choose depends on how much you have saved up and the type of home loan you’re applying for.

Here are a few things to keep in mind:

•   FHA loans: You can qualify for a government-backed FHA loan with as little as 3.5% down. However, the credit score needed to buy a house with a mortgage through the Federal Housing Administration is 580. You may be able to qualify with a lower credit score, but you have to put at least 10% down (that’s $25,000 for a $250,000 home).

•   PMI: If you don’t want to pay private mortgage insurance on your conventional mortgage, you need to put at least 20% down ($50,000). That said, you might be able to qualify with as little as 3% down, although in that case PMI will be part of the deal.

•   Monthly payments: The larger your down payment on a $250,000 home, the smaller your monthly payment will be.

What Does the Monthly Mortgage Payment Look Like for a $250K Home?

There’s no one single monthly mortgage payment you should expect for a $250,000 home, as it depends on several key factors, such as the interest rate, how much money you put down, property taxes and homeowners insurance (which are often added to the monthly mortgage bill), and the loan term.

The table below shows some estimated payments based on how much is the down payment for a $250,000 house, the length of the loan, and the interest rate — but these are examples only. You can use a mortgage calculator to estimate the more exact monthly mortgage payments for a $250,000 home based on your unique situation. Remember that if you purchase at one interest rate, you can always do a mortgage refinance if rates drop significantly.

What to Do Before You Apply for a $250K Mortgage?

Before applying for a $250,000 mortgage, focus on getting your finances in order. Here are a few ways to improve your approval odds and keep the monthly payment affordable:

•   Pay down existing debts: Reducing other debts can help boost your credit score and lower your DTI ratio. These both improve your approval odds and make it easier to afford a monthly mortgage payment.

•   Save money: Open a high-yield savings account and start saving up for a down payment. The more you save for a down payment, the lower your monthly mortgage payment will be.

•   Get preapproved: When you’re ready to start shopping, seek preapproval for your max budget (such as $250,000). Going through this process will give you a pretty solid idea of what you can afford.

Recommended: Average Monthly Expenses for One Person

Should I Get Preapproved Before Applying for a Mortgage?

Getting preapproved is helpful in many ways:

•   Completing the mortgage preapproval process will let you know whether you’re likely to be approved for the cost of the house you want to purchase. If $250,000 is the top of your budget, see if a lender will be willing to lend you that amount (with the down payment you’re willing to pay).

•   Mortgage preapprovals signal to sellers that your offer is legitimate and can help you get your offer accepted, particularly if the housing market is competitive.

Just remember that preapproval is different from prequalification. A preapproval involves a hard credit check, so only get a preapproval if you’re serious about buying and plan to make an offer soon. A lender can tell you how long a preapproval is good for before you apply.

How to Get a $250K Mortgage

Here’s how to get a mortgage for a home priced around $250,000. In fact, these basic guidelines hold true whether you need a modest mortgage or a jumbo loan:

1.    Figure out your finances: Make sure you have enough money for the down payment, and look into down payment assistance programs if necessary. Focus on improving your credit score before searching for lenders.

2.    Research lenders: Compare several lenders (both online and in person) to see which has the lowest rates and fees.

3.    Apply for preapproval: You can likely do this over the phone or online. You’ll need to upload a fair amount of documentation, including pay stubs, tax returns, proof of identification, bank statements, and more.

The Takeaway

The down payment for a $250,000 house depends on the type of mortgage you’re applying for — and the monthly mortgage payment you’re comfortable making. But some first-time homebuyers can get approved for as little as 3% down (that’s $7,500 on a $250,000 house). Finding a mortgage lender with a competitive interest rate and low fees can also keep your costs down.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much should I make to afford a $250,000 house?

The amount of money you should make to afford a $250,000 house depends on several factors, including your other debts, your credit score, the cost of homeowners insurance and property taxes, and the size of your down payment. That said, a salary of around $76,000 a year will help you afford a $250,000 mortgage.

What credit score is needed to buy a $250,000 house?

The credit score needed to buy a house worth $250,000 depends on the type of mortgage you are applying for. Conventional mortgages often require a credit score of 620 or higher. You can qualify for an FHA loan with a score as low as 500 if you put 10% down. VA loans require a minimum credit score of 620. USDA loans usually require a credit score of 640.

How much is a $250K mortgage per month?

The monthly mortgage cost for a $250,000 home loan can vary greatly, depending on the size of the down payment, the interest rate, the length of the loan term, property taxes, and homeowners insurance costs. Budget anywhere from $1,000 to $2,000 a month, though in some cases, it could be even higher or lower.

Photo credit: iStock/Valentyna Yeltsova

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q225-145

Online lenders can make applying for and securing a personal loan easier than working with traditional lenders. The process of getting a lump sum of cash to use however you wish can be fast, affordable, and convenient. However, there may be some times that a traditional lender is a better option. Learn the full story here.

Convenience

The convenience factor is one of the biggest advantages of getting an online personal loan. Younger generations of consumers might be drawn to a process that incorporates the technology they’ve grown up with and are comfortable using. But online lenders often have a streamlined application process that might appeal to people of any generation who are comfortable with technology.

Online loan applications can be completed from anywhere a prospective borrower has an internet connection, preferably secure. In addition, online lending websites often have thorough lists of Frequently Asked Questions (FAQs) to give consumers as much information as possible without the need to travel to a brick-and-mortar bank branch.

Competitive Rates

The lack of brick-and-mortar locations is one key reason why online lenders can often offer competitive rates on personal loans. Without physical bank branches to maintain, their overhead is likely to be less than a traditional bank’s.

Some online lenders, however, may try to generate profits by charging fees, such as those for paying off a loan early. When shopping around for personal loan rates, you’ll want to be sure to compare annual percentage rates (APRs), which includes any fees. This allows you to compare loans apples to apples.

Recommended: APY vs Interest Rate

Quick Turnaround

Some online lenders are able to offer preapproval to prospective borrowers with just a soft inquiry on their credit report that won’t affect their credit score. One benefit of knowing quickly what rate might be offered is being able to compare rates among multiple lenders to find the one that will be the best fit.

After the application and loan approval, some online lenders distribute loan funds in as quickly as one to a few days. You may even see some lenders advertising same-day approval and disbursement. For people who need access to funds quickly, this could be the determining factor in choosing a lender.

Recommended: What to Know Before You Borrow Money Online

Differing Criteria

Someone who has not built a credit history might have difficulty being approved for a personal loan. Some online lenders, however, are willing to look at factors other than credit score in determining approval for a personal loan and may have more flexible qualification criteria than a traditional bank.

There are also some online lenders that cater specifically to underserved populations.

Recommended: Typical Personal Loan Requirements Needed for Approval

What About Traditional Banks?

Even though online lenders are well established in the financial world, traditional banks still make sense for some people or some financial needs.

For people who prefer working with a lender in person, a traditional bank or a credit union can be a good choice. If there is already a relationship in place with a particular financial institution, it may be advantageous to build on that and get a personal loan rate quote from that lender.

In some situations, a personal line of credit (LOC) might be a better option than a personal loan. Though online lenders are beginning to offer LOCs, they are more likely to be offered by banks or credit unions.


💡 Quick Tip: Choosing a personal loan with a fixed interest rate makes payments easy to track and gives you a target payoff date to work toward.

From Disrupting to Redefining

Online lenders and traditional financial institutions are realizing that they can meet the needs of more consumers if they work together. Today’s modes of banking may be less about disrupting the status quo of lending and more about finding a new definition of banking as a whole.

Recommended: Guide to Unsecured Personal Loans

The Takeaway

If you’re thinking about taking out a personal loan, the great news is that you have plenty of lenders to choose from, including traditional banks, credit unions, and online lenders. Some people may prefer the in-person experience of working with a traditional bank or credit union. Others may find that online personal loans can make it easy to rate-shop and typically offer a quick and convenient application process. Online lenders also tend to be faster to fund than traditional institutions.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is it better to apply for a personal loan online or in person?

It’s a matter of personal choice whether to apply for a personal loan in person or online. Some people may prefer the face-to-face interaction and support of applying in person. Others may like the speed and convenience of applying online.

What are the cons of online lenders?

Some people may feel the cons of online lenders include having to share sensitive financial information online and not having in-person support.

How long does it take to get an online personal loan?

Online personal loans can often be obtained in just a day or two. Some lenders even advertise same-day approval and disbursement.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

Whether you’re planning to renovate your kitchen, add a room to your home, or upgrade your backyard, home improvement projects typically require a sizable financial investment. While you might be able to pay cash for small-scale repairs and upgrades, a more substantial project could require funding. That’s where home improvement loans come in. These are personal loans used to pay for home repairs and renovation projects. These loans aren’t backed by the equity you have in your home, and they are generally one of the quickest ways to get funding for a home improvement project. However, they may have higher interest rates and offer lower amounts than other options, such as a home equity loan.

Read on to learn how home improvement loans work, their pros and cons, and how they compare to other home remodel financing options.

What Is a Home Improvement Loan?

Typically, a home improvement loan refers to a personal loan that is designed to be used to pay for home upgrades and renovations.

These are unsecured loans — meaning your home isn’t used as collateral to secure the loan. In fact, lenders typically don’t ask for any information about your home with this type of financing. Instead, a lender decides how much to lend to you and at what rate based on your financial credentials for a personal loan, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often one or seven years.

One of the advantages of a home improvement loan is that it allows you to access a significant amount of money upfront quickly, often within a day or two. You also don’t need to have built up any equity in your home, or risk losing your home should you default on the loan.

However, personal loans for home improvement tend to be shorter-term and offer smaller loan amounts than other home loan options, making them best suited for small to midsize projects, say renovating a bathroom or repainting the exterior of your home.

Recommended: Can I Pay off a Personal Loan Early?

Alternatives to a Personal Loan

While personal loans can be a quick and convenient way to fund home improvement projects, they aren’t your own option. Here are some alternatives you may also want to consider.

Home Equity Loan

Home equity is the portion of your home that you actually own. More specifically, it is the difference between what your home is currently worth and what you owe your lender. So, for example, if you took out a mortgage for $200,000 and have paid down $50,000 of that loan, you owe the lender $150,000. If your home gets appraised for $250,000, you have $100,000 in equity.

A home equity loan is a loan that utilizes the equity you have built in your home as collateral. Home equity loans often have fixed interest rates and terms that typically range from five to 30 years. These loans provide homeowners with a lump sum of money that can be used for various purposes, including home improvements. As you repay a home equity loan, your payments get added back to your principal, allowing you to build your equity back up.

With a home equity loan, you can often borrow up to 85% of the equity you have in your home.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is similar to a home equity loan, except that the funds are not distributed in a lump sum. The amount of money you can borrow is still tied to the amount of equity you have in your home, but you are given access to a line of credit that you can borrow from as needed.

HELOCs have a draw period, usually 10 years, when you can use some or all of the funds you’re approved to borrow. During that time you typically make interest-only payments on the amount you draw. You then repay the principal later, during the repayment period.

Like a home equity loan, a HELOC is essentially a second mortgage, so you’re using your house as collateral. Unlike a home equity loan, HELOCs have variable rates, which means your annual percentage rate (APR) could go up or down in the future.

One key advantage to a HELOC is its flexibility. This type of financing can be particularly useful for projects you’re doing in stages, or when you don’t know exactly how much the renovation will cost.

Cash-out Refinance

A cash-out refinance involves refinancing your existing mortgage for a higher amount than what you currently owe. The difference between the new loan amount and your current mortgage balance is paid out to you in cash, which you can use for home improvements.

Because cash-out refinancing involves revising your mortgage, it can be a good move if rates have dropped since you financed your home, or you’re in a better financial situation than when you originally took out your mortgage. Lenders typically look at an applicant’s financial history, as well as the appraised value of the home and how long the existing mortgage has been in place.

You’ll want to keep in mind, however, that closing costs can be 2% to 6% of the new mortgage amount, which could potentially be more than you plan to spend on the improvement project.

Construction Loan

If you’re planning significant renovations or an extensive home improvement project, a construction loan may be worth exploring. Construction loans are specifically designed for large-scale projects, such as significant structural changes or additions to a property. These loans usually have variable interest rates and short terms, often just one year.

Unlike mortgages and personal loans that make a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the home progresses. Generally, you make interest-only payments during the construction stage. Once construction finishes, the construction loan needs to be repaid or converted into a mortgage.

Applying for a Home Improvement Loan

Before choosing any type of home improvement loan, it’s a good idea to shop around and compare interest rates, terms, and fees from different lenders to ensure you’re getting the best possible deal.

When applying for a home improvement loan, you’ll need to gather all the necessary documentation to support your application. Lenders typically require proof of income, proof of residence, and information about the project you plan to undertake. Some lenders may also ask for estimates or contractor bids to assess the cost of the project.

Your current debts, housing payment, credit history, and total income will all play a role in what rates and terms you qualify for. If possible, take advantage of lenders that offer a prequalification process. This gives you a sense of your approval odds, predicted interest rate, and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score.

The Takeaway

Home improvement loans allow you to finance a repair or remodeling project for your home. You may be able to get an unsecured personal loan designed to be used for home improvement or, if you’ve built up equity in your home, use a home equity loan, HELOC, or a cash-out refinance, to fund an upgrade. For a substantial structural change, you might consider a construction loan.

If you think a personal loan might work well for your home improvement project, SoFi can help. SoFi’s home improvement loans range from $5K-$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score.

FAQ

Why are home improvement loans so expensive?

Home improvement loans may have higher interest rates compared to traditional mortgages for a few reasons. One is that these loans are often unsecured, meaning you don’t have to use your home as collateral to get the loan, which poses more risk to the lender. Another is that these loans typically have shorter repayment terms compared to mortgages, resulting in higher monthly payments. Also keep in mind that interest rates can vary based on the borrower’s creditworthiness and prevailing market conditions.

Is a home improvement loan the same as a mortgage?

No. A mortgage is a loan used to purchase a property, while a home improvement loan is specifically used to fund renovations or improvements on an existing property. Home improvement loans are typically smaller in amount and have different terms and repayment options compared to mortgages.

How much debt to income do I need for a home improvement loan?

The specific debt-to-income (DTI) ratio required for a home improvement loan can vary depending on the lender and other factors. Generally, a DTI ratio below 43% is considered favorable for loan approval. This means that your total monthly debt payments, including the new loan, should not exceed 43% of your gross monthly income. However, different lenders may have different criteria, so it’s essential to check with the lender you’re considering for their specific DTI requirements.

What is the average length of a home improvement loan?

The average length or term of a home improvement loan will depend on the type of loan you choose. Personal loan terms can range from five or seven years. Loans based on the equity in your home (such as a home equity loan or line of credit) can have terms up to 30 years.

What is the downside to a home equity loan?

While home equity loans can be a useful option for funding home improvements, there are some potential downsides to consider. These loans use your home as collateral, which means you risk foreclosure if you’re unable to repay the loan. Also, should your property value decline, you may owe more on the loan than the home is worth, which is known as being “underwater.” Finally, home equity loans typically come with closing costs and fees, which will add to the cost of your remodel.

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